Big shareholders prop up VHA

Vodafone Hutchison Australia is losing money but remains operating thanks to loans from its main shareholders, the global Vodafone Group and Hong Kong businessman Li Ka-shing.

On Tuesday Sir Li's Australian subsidiary, Hutchison Telecommunications (Australia) reported a $394 million loss for the 2012 calendar year, after a $168 million loss in 2011.

Hutchison revealed its revenue of $19 million, up from $11 million in 2011, was interest payments from VHA, which borrowed more money from it during the year.

The financial reports show Hutchison Whampoa Ltd, of which Sir Li is chairman, extended an interest-free $583 million loan to VHA during the year.

"One of VHA's ultimate shareholders, Hutchison Whampoa Ltd, and one if its direct shareholders, Vodafone Oceania Ltd, have confirmed their current intention to provide financial support to enable VHA to meet its financial obligations as and when they fall due for a minimum period of 12 months from the date of signing the VHA financial statements," the reports stated.

Vodafone Hutchison is also in discussions with financiers about a $1.6 billion payment due in June after it borrowed $3 billion in 2010 from an international consortium of 12 banks.

Hutchison reported that Vodafone Hutchison's revenue was about $4.1 billion in 2012, down from $4.6 billion in 2011, and earnings dropped 43 per cent to $355 million. HTA does not report VHA's expenses or operating costs.

However, it is well known that Vodafone Hutchison has spent more than $1 billion on infrastructure in its mobile network to improve performance.

Hutchison shares were trading at 2.8¢ on Tuesday, down from a closing price of 2.9¢ on Monday. Shares traded as high as 13.5¢ in late 2010, before the network suffered from overloading and slow speeds. Hundreds of thousands of accounts have been deactivated since then, and Vodafone now has about 6.6 million active accounts on its network, down from a peak of 7.4 million in mid-2010.

Deutsche Bank equities analyst, Vikas Gour, estimates VHA now has a 22 per cent market share, Optus 31 per cent and Telstra 47 per cent. In 2010 these figures were 28 per cent, 32 per cent and 40 per cent respectively.

Mobile terminating rates are wholesale fees paid by one mobile carrier to another whenever customers call another mobile network. Telstra is a net payer of these rates to Vodafone and Optus, because it has a higher market share. Last year the competition regulator reduced terminating rates from 9¢ a minute to 6¢ a minute, which reduced the revenue Optus and Vodafone received from Telstra.